Many investors feel like running away from homes

Buying real estate seemed a no-brainer five years ago. Cheap loans were easy to get. Home prices were soaring. Stocks were dead money.
How things have changed.
For-sale signs are sitting ignored in some cities. Interest rates on exotic loans are doubling. Insurance premiums and property taxes are skyrocketing. Wannabe real estate tycoons stuck with properties they can't sell have been turned into landlords, forced to fix toilets and take tenant calls in the middle of the night. Many are "under water" — owing more on the mortgage than they could get by selling.
Meanwhile, stock investors have been celebrating again as broad market indexes march to new highs. And that is prompting some real estate investors to make the switch back to stocks. Real estate "isn't as lucrative as it used to be," says Jack Patterson, a financial adviser in Coral Gables, Fla., who has been helping clients sell real estate and buy stocks.
It's a complete flip-flop from 2002, when investors tired of the bear market ravaging Wall Street cashed in their stocks and bought homes and investment property. People doing that were the subject of a USA TODAY cover story in December 2002.
Dave Yeske, a San Francisco financial adviser, was featured in that 2002 story because he was being barraged with people selling stocks to buy homes. "The pendulum has swung in the opposite direction," he says now. "The clients that sold stocks to buy spec houses in Arizona are telling me they're under water, can't rent them and they wish they left all the money in the stock market."
Lex Latkovski saw this shift early and made his move last year. He had been a big real estate investor. Shortly after moving to Phoenix in 1996 for a consulting job, Latkovski, 38, bought a house in the area for $87,000, putting down just $5,000. As home prices leapt, Latkovski quadrupled his bet, buying three more homes on the same street as investments. The prices on the homes skyrocketed.
Rather than ride the real estate wave until it crashed on the jetty, Latkovski bailed out. He sold three of the homes last year, pocketed a 60-fold gain and moved the money into the stock market. Seeing real estate as played out, he's bought exchange-traded funds and mutual funds.
"It was time to take my profits and walk away," he says.
It's easy to sour on real estate while watching stock investors making money without dealing with rental property and the associated costs, says Norma Solarz. Solarz, who as a social worker has next to no retirement benefits, bought a property in Oakland for $225,000 in 1997 with plans to rent it out, collect income along the way, sell it down the road and use the proceeds as a retirement fund.
Things haven't worked out the way she'd hoped. While the property has appreciated, by her estimate, to roughly $600,000, being a landlord is a bigger hassle than she'd ever imagined. She's plowed about $56,000 into the property for various repairs and had to deal with tenants and their problems no matter the time of day.
"I'm not sure it's worth the headache," she says, adding she's prepared to sell the property and move into stocks as soon as housing prices firm up.
She might have to wait awhile if current trends persist. The median existing single-family home price fell 0.9% from a year ago to $220,500 in April, according to the National Association of Realtors. And based on the S&P/Case-Shiller Home Price Indices, home prices in 10 leading metropolitan areas are expected to fall another 1.6% by November and 3.3% by February '08.
Some real estate speculators aren't willing to sit it out.
"Clients are telling me they're so ready to get out," says James Simos, a financial adviser at Infinity Financial Services who has been advising people how to shift out of properties and into stocks. "They don't want the taxes, the toilets and the tenants."
Recent real estate investors who are getting burned now could have saved themselves some trouble if they had done some research.
Historically, stocks have always been superior investments to housing, according to a comprehensive study by Ken Winans, president of investment research firm Winans International. From 1920 to December 2006, the average new home appreciated from $4,030 to $276,400, a 6,759% gain, he says.
But in that same 86-year period, the Dow Jones industrial average returned 17,210%, not even including dividends. Stocks still beat real estate over the past 20 years. New home prices gained 268% from 1986 to 2006, a fraction of the Dow's 1,193% gain, Winans says.
But as anyone who bought stocks back in 2000 knows, neither real estate nor stocks are safe investments.
For instance, Winans says that during the Great Depression, real estate lost 73% of its value and the stock market declined more than 90%. Realtors don't forecast real estate prices to fall that much this time, but the estimates continue to worsen.
The cycles of investing return to stocks
The migration from real estate to stocks is part of the natural swings investors go from loving an investment class to hating it, says Robert Shiller, a Yale professor who studies market movements. Just as investors saw housing as a haven from the bear market for stocks in 2002, they see stocks as their best bet now as some housing markets go from bad to ugly, he says.
Winans and others think the sloshing of money from real estate into stocks is one of the factors fueling the stock market's recovery to record levels. "Inventories (of unsold homes) are up while coinciding with volumes and prices of stocks going up," he says. "Surprising there aren't more people connecting the dots."
It's the "real estate effect," says Robert Maltbie of Millennium Asset Management. Individual investors who bet on real estate "know that's nowhere to go, so they're going back to equities," he says.
Frank and Kathleen Schlier, both 49, debated between investing in real estate and stocks, and stocks won. In May, they sold one of their investment properties — a home they inherited in Lafayette, Calif., about 25 miles east of San Francisco.
It was worth $800,000 when they inherited it last year, and they figured that with some work they could make an even bigger windfall. They plowed $30,000 into the property to subdivide the land into two parcels that could be sold separately. And they were thinking about spending another $800,000 to upgrade the existing home and build another on the second part of the land.
But they watched real estate prices struggle in the area, while stock prices soared, and they changed their minds. They put the entire subdivided property on the market for $1.2 million and ended up selling for $1.025 million. They're pleased with the money they've made but feel the stock market is a better place now and over the long term. They've taken the proceeds and plowed them into the stock market in a diversified portfolio.
Now they're considering selling their second investment property in Atwater, Calif., which Frank bought seven years ago for $140,000 on hopes the area would boom. But while prices soared to $300,000 last year, they've since fallen to $250,000 and the prospects aren't promising. Speculators flooded the area, and now many are having trouble finding renters, Frank says. If the person renting the property leaves, he's ready to sell that, too, and move that money into stocks.
Real estate can be really annoying
As people like the Schliers have learned, while real estate can be lucrative, it often comes with headaches and hidden costs. Those may have been tolerable when home prices were soaring, but now that prices have stabilized or even started to drop, the annoyances are deal killers.
Some investors want to get out but fear they're so far in the hole already that they don't want to take the loss. Janice Burnham, an eBay employee who lives in San Francisco and was included in USA TODAY's 2002 cover story, got fed up with stocks and bought a Silicon Valley home in 2002 and an investment property in Folsom, Calif., near Sacramento two years ago. She paid $353,000 for the investment property.
"Everyone else was making money," she says. "I figured this was the way to make money. I've changed my opinion on that," she says.
Now she figures she would have trouble selling the Folsom home for $320,000, a loss she's trying to avoid by renting the property. But that's not going well, either, because she spends money for upkeep and struggles to find tenants.
"It's a lot of work for no gain," she says.
Meanwhile, the money she left invested in the stock market has risen considerably since she took the real estate plunge.
Flippers deal with their fates
The plight of real estate investors is even the topic of a Web mockumentary, called Flipper Nation, that pokes fun at two wannabe real estate speculators who ended up making a $1 profit.
Jesting aside, some real estate investors are sticking with housing, in the belief that the bottom has been formed. Scott Hibner sold his investment properties in Las Vegas and used the proceeds to buy rental properties in Austin, where he thinks the prospects are brighter. He's planning on holding the properties for five to 10 years and not going "for a quick flip."
Others, like Nigel Swaby, a 36-year-old mortgage broker in Salt Lake City, are reluctant stock investors. Fearing the prices on two investment properties he owned in Salt Lake City could decline, he sold them in 2005 and invested the money in stocks.
Swaby wants to get back into real estate and has been hunting for homes to buy, but feels prices are still too inflated. "There aren't a ton of deals out there," he says. So his money sits in a high-yield savings account, a diversified stock mutual fund and four stocks: Procter & Gamble, Nortel Networks, Revlon and United Airlines. "I want a higher rate of return than a savings account, and stocks are it, until the real estate opportunity presents itself."
There are also real estate investors who borrowed so much and are so under water they're not yet willing to give up, says Tucker Watkins, a financial adviser at Ameriprise. "They have learned the hard way how illiquid rental real estate is," he says.
Each bit of news about the softening housing market makes these real estate investors, hoping for a turnaround, even more nervous, says Rob Alpert, a Smith Barney financial adviser based in Long Island with several clients who bought investment property in Florida. "They're waiting and seeing. They're miserable," says Alpert, who has advised clients with shakier finances to take the loss and move to stocks. "Don't make this worse," he tells clients.
Investors such as Latkovski, who already sold their real estate, are glad to be free from the worry. He's now traveling the world for two to five years, including China and India, paid for by the interest and dividends he's collecting from his investments. He updates his website with accomplishments, such as hiking to the top of a mountain in Lamayuru, Ladakh. "I'm taking some time off," he says.
http://www.usatoday.com/money/economy/housing/2007-06-06-real-stocks-usat_N.htm